July 26, 2012

The other day I found an old receipt for some furniture I had bought in 1997. It was the furniture I bought for my first apartment I had when I initially started my current job. I paid $658 total for the furniture. I was wondering how much that might equate to today given the rate of inflation. Somewhat surprisingly the cost of furniture is actually down from 1997 to today. Apparently when I bought in '97 I got in just before the peak. We still haven't recovered from the 'Furniture Bubble of 1999'.

I got the data from the BLS CPI site. You have dig into the database to get the figures for specific index and I used the 'furniture and bedding' price index.

Here's the history :

As you can see the prices have been dropping since 1999. In that year the peak hit 135 on the index and today its down to 119. That equates to about -1% annual change or 1% deflation for the period from 1999 to 2012. This is a distinct change in price trends from what we saw the previous 3 decades. From 1969 to 1999 the price of furniture went up gradually as you would expect to see. In that 30 year period furniture costs rose an annual rate of about 3.4%.

Of course I'm just jokingly calling this a 'Furniture Bubble'. Just because prices go up and then decline does not qualify as a bubble. It seems that sometimes people look at increasing prices and declare it a 'bubble' no matter the circumstances. I think this is an example of how thats not true. Rising prices alone don't equate to a bubble.

Why did prices drop in the past 13 years? Your guess is as good as mine. I'm thinking its due to us buying more stuff cheaply made in China or via Ikea. Also, I didn't look into the methodology of the index so I don't know how exactly they are measuring the prices. Its possible that the products we are buying are more often cheaper quality as well. It also seems to me that every single furniture item I buy nowadays comes unassembled and there is certainly a cost impact associated with that.

1 comment:

I think the index is actually quality adjusted. Specifically, I have heard that the calculation for car inflation doesn't go up as much as the cost of cars, because every year car makers add new features that provide value for the additional nominal dollars the cars cost. I don't know if they do the same thing for furniture though.

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